Thermo-solar power plant in Beni Mathar, Morocco.
Photograph: Graeme Robertson for the Guardian

Renewable energy accounted for almost half of all new power plants in 2014, representing a “clear sign that an energy transition is underway”, according to the International Energy Agency (IEA).

Green energy is now the second-largest generator of electricity in the world, after coal, and is set to overtake the dirtiest fossil fuel in the early 2030s, said the IEA’s World Energy Outlook 2015 report, published on Tuesday.

“The biggest story is in the case of renewables,” said IEA executive director, Fatih Birol. “It is no longer a niche. Renewable energy has become a mainstream fuel, as of now.” He said 60% of all new investment was going into renewables but warned that the $490bn of fossil fuel subsidies in 2014 meant there was not a “fair competition”.

Amid the energy transition, the IEA said the price of oil, currently under $50 a barrel, was likely to recover only to $80 by 2020 and see modest growth beyond.

The IEA said investment in oil exploration and production was set to fall by 20% in 2015, as high cost projects in the US, Canada, Russia and Brazil continue to be shelved. But it said US shale oil producers could move back into profit with prices of $60-$70 a barrel.

The IEA, which was founded in response to the oil shocks of the 1970s, also warned that if the oil price remained at $50 for a decade or more, cheaper oil from the Middle East would come to dominate exports, with 75% market share.

Birol said that the scenario was “unlikely”, but that if it came to pass, “reliance on a very few number of countries in a region that is in turmoil may not be the best news for oil security.”

“Now is not the time to relax,” he said. “Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats.”

The rapid rise of renewables charted in the new IEA report will lead to a dramatic slowdown in the growth of carbon emissions, the agency said. But, just weeks ahead of a crunch UN climate change summit in Paris, the IEA calculated that the world was still on course for 2.7C of global warming, significantly above the 2C considered to be the threshold of dangerous warming. “A major course correction is still required,” said the report.

“World leaders meeting in Paris must set a clear direction for the accelerated transformation of the global energy sector,” said Birol. “The difference between 2.7C and 2C is not something meaning you can take your jacket off and adapt to life - it will have major implications for all of us.”

The IEA projects “turbulent times” ahead for coal: “Coal has increased its share of the global energy mix from 23% in 2000 to 29% today, but the momentum behind coal’s surge is ebbing away and the fuel faces a reversal of fortune.” It projects a 15% share by 2040.

Huge changes in China are a major factor in coal’s decline, said Birol: “The era of the China boom in terms of energy demand growth is coming to an end. This is a major story and has implications for the entire world.” He said China had the biggest energy efficiency programme in the world and that “China is the champion of renewables”, as well having a major nuclear programme and likely growth in unconventional gas.

But the IEA expects coal demand is set to triple in India and in south-east Asia by 2040. “South-east Asia is amazingly important and not getting much attention,” said Birol. “It is the only region in the world where the coal demand is increasing its share.” He said, in the absence of climate policies, cheap coal and renewables would squeeze out gas in the region.

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“India is moving to the centre stage of energy,” said Birol, becoming the main global driver of coal consumption and oil demand in the world by 2040 as well as accounting for 20% of the globe’s solar power installations. “The choices India makes will be important for all of us, and therefore there is a need for supporting India’s push for clean and efficient technologies.”

Benjamin Sporton, chief executive of the World Coal Association, said: “This IEA report is a reminder of the continuing role of coal and the need to ensure it is used as cleanly as possible through the use of low-emission coal technologies.”

The IEA has been criticised in the past for underestimating the speed of solar energy deployment. “The global breakthrough of renewable energy has happened much faster than anticipated,” said Emily Rochon, global energy strategist at Greenpeace International. “The IEA is catching up on renewable energy trends, but it is still failing to see the full potential of change. We believe that with the right level of policy support, the world can deliver 100% renewable energy for all by 2050.”

Birol said the IEA’s previous forecasts for hydropower and wind power had been correct and that solar projections were based on the government support existing at the time. “If the policies change, the numbers will change as well,” he said. “They may need to be revised [upwards] next year. I hope so.”